Chapter 35
Limited Partnerships
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Limited Partnerships
• Statutory creations
• Have both general and
limited partners
• Used for investing in real
estate, movie productions, oil
and gas
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Limited Partnership
• A type of partnership that has two
types of partners:
– General Partners –invest
capital, manage the business,
and are personally liable for
partnership debts.
– Limited Partners –invest capital,
but do not participate in
management and are not
personally liable for partnership
debts beyond their capital
contribution.
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Limited Partnership (continued)
• A limited partnership must have at
least one general partner and
one limited partner.
• There are no restrictions on the
number of general or limited
partners allowed.
• Any person may be a general or
limited partner.
• Corporation may be sole general
partner.
– Shareholders are liable only up to their
capital contributions.
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The Revised Uniform Limited
Partnership Act (RULPA)
• Uniform Limited Partnership Act
(ULPA)
– Promulgated in 1916
– Contained a uniform set of
provisions for the formation,
operation, and dissolution of
limited partnerships
– Most states originally enacted
this law
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The Revised Uniform Limited
Partnership Act (RULPA)
(continued)
• Revised Uniform Limited
Partnership Act (RULPA)
– A 1976 revision of the ULPA
– Provides a more modern
comprehensive law for the
formation, operation, and
dissolution of limited
partnerships
– A majority of states have
adopted the RULPA
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Limited Partnership (continued)
Limited
Partnership
Debt or obligation
owed
Third Party
Capital investment
Limited
Partner
Limited
Partner
Liability limited to capital
contribution
No personal liability for partnership’s
debts and obligations
General
Partner
General
Partner
Personal liability for partnership’s
debts and obligations
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Formation of Limited
Partnerships
• The creation of limited
partnerships is formal
• Requires public disclosure.
• Entity must comply with the
statutory requirements of the
RULPA or other state statute.
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Certificate of Limited Partnership
• Document that two or more
persons must execute and sign.
• Contains name of limited
partnership, purpose, names and
addresses of partners, agent, and
principal place of business,
contributions of each partner.
• Must be filed with secretary of
state.
• Not formed until certificate filed.
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Amendments to Certificate of
Limited Partnership
• Certificate must be kept current
by filing amendments
• Filed at same offices as certificate
• Changes must be filed within 30
days
–
–
–
–
Change in capital contributions
Admission of new partner
Withdrawal of partner
Continuation of business after judicial
dissolution or withdrawal of general
partner
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Name of Limited Partnership
• The firm name of a limited
partnership may not include
the surname of a limited
partner unless:
1. it is also the surname of a
general partner, or
2. The business was carried on
under that name before the
admission of the limited
partner.
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Name of Limited Partnership
(continued)
• Other restrictions:
1. The name cannot be the same as or
deceptively similar to the names of
other businesses or partnerships.
2. States can designate the words that
cannot be used in limited partnership
names
3. The name must contain without
abbreviation the words limited
partnership
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Capital Contributions
• Under RULPA, these may be
in cash, property, services
rendered, or a promissory
note or other obligations to
contribute cash, property, or
to perform services.
• Partners or creditors may
bring lawsuit to enforce
promise to make
contribution.
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Defective Formation
•
Occurs when:
1. A certificate of limited partnership is
not properly filed,
2. There are defects in a certificate
that is filed, or
3. Some other statutory requirement for
the creation of a limited partnership
is not met.
•
Limited partners who have been
erroneously been listed as a
general partner can have
certificate of amendment filed or
can withdraw
•
Liable as a general partner for all
transactions until amendment filed.
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Limited Partnership Agreement
• Document that sets forth:
– The rights and duties of the
general and limited partners;
and
– The terms and conditions
regarding the operation
– dissolution and termination
terms.
• If no agreement, certificate
serves as articles.
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Share of Profits and Losses(continued
)
• The limited partnership agreement
may specify how profits and losses
are to be allocated among the
general and limited partners.
• If there is no such agreement,
RULPA provides that profits and
losses from a limited partnership
are shared on the basis of the
value of the partner’s capital
contribution
• A limited partner is not liable for losses
beyond his or her capital contribution
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Right to Information
• Upon reasonable demand true and full
information regarding the state of the
business, the financial condition, etc. The
limited partnership must also keep the
following records at its principal office:
– Copy of certificate of limited liability and
all amendments thereto
– List of the full names and business
addresses of each partner
– Copies of effective written limited
partnership agreements
– Copies of federal, state, and local income
tax returns
– Copies of financial statements for the
three most recent years.
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Admission of New Partners
• A new limited partner can be
added only upon the written
consent of all partners.
– Agreement can provide otherwise.\
• Admission effective after
amendment filed.
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Foreign or Domestic?
• Domestic Limited Partnership – A
limited partnership in the state in
which it is formed.
• Foreign Limited Partnership – A
limited partnership in all other
states than the one in which it was
formed.
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Foreign or Domestic? (continued)
• Under the RULPA, the law of the
state in which the entity is
organized governs its
organization, its internal affairs,
and the liability of its limited
partners.
• Certificate of Registration – A
document permitting a foreign
limited partnership to transact
business in a foreign state.
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Liability of General and Limited Partners
• General partners of a limited
partnership have unlimited
liability for debts and
obligations of the
partnership.
• Limited partners are liable
only up to amount of their
capital contributions.
– Give up right to participate
in the control and
management
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Participation in Management
• General partners have
management rights.
• Limited partners give up
these right in exchange for
limited liability.
– Liable as general partner if
participation is substantially the
same.
– Only liable to persons who
reasonably believe them to be
general partners.
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Permissible Activities of Limited
Partners
• Being an:
– Agent of the limited partnership
– Employee of the limited
partnership
– Contractor of the limited
partnership
– General partner
• Being a consultant or advisor to a
general partner regarding the
limited partnership.
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Permissible Activities of Limited
Partners (continued)
• Acting as a surety for the limited
partnership.
• Approving or disapproving an
amendment to the limited
partnership agreement.
• Voting on certain specific
partnership matters.
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Liability on Personal Guarantee
• When an extension of credit from
a bank, supplier, or other creditor
is not approved based on the
credit of the limited partnership,
the creditor my require a limited
partner to guarantee the
repayment of the loan in order to
secure repayment.
• Creditor may enforce personal
guarantee if limited partnership
defaults.
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Summary: Liability of Limited Partners
General Rule
Limited partners are not individually
liable for the obligations or conduct of
the partnership beyond the amount of
their capital contribution.
Exceptions to the
General Rule
Limited partners are individually liable
for the debt, obligations, and tortious
acts of the partnership in three
situations:
1. Defective Formation
2. Participation in Management
3. Personal Guarantee
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Dissolution of a Limited
Partnership
•
Partnership may be
dissolved:
–
–
–
–
At the end of the life of the
limited partnership as
specified in the certificate of
limited partnership.
With the written consent of all
general and limited partners.
Because of the withdrawal of
a general partner.
With the entry of a decree of
judicial dissolution.
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Winding-Up a Limited
Partnership
• A limited partnership must
wind up its affairs upon
dissolution.
• Certificate of cancellation
must be filed by the limited
partnership with the secretary
of state of the state in which
the limited partnership is
organized.
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Distribution of Assets
• After the assets of the limited
partnership have been liquidated,
the proceeds must be distributed.
• The RULPA provides the following
order of distribution of partnership
assets:
– Creditors of the limited
partnership
– Partners with respect to
• Unpaid distributions
• Capital contributions
• The remainder of the
proceeds
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